Buyers, you have so many people trying to get your money. In many situations you need to pay for flights to visit the business, pay for an attorney, pay a CPA, pay qualified professionals to inspect equipment…the onus is on you to ask for information during a purchase, verify the information and hope that it is accurate. But that may not be it. Below are examples of other true instances you may have to worry about – but should not have to.

1. Crazy Comparables

It can be pretty easy to manipulate the value of a business by selecting the similar sold businesses that best fit what you are looking for. Recently a broker sent over pizza shops that had similar numbers as to the one they were looking to purchase with just one catch; the sold business comparables were from 2004-2006, but the dates were not revealed to the buyers. Much like the real estate market at that time, businesses were selling for much higher multiples. If they had not searched for a 2^nd opinion they would have highly overpaid for a business.

2. Ignorance Isn’t Bliss, And Not Good For Sales

In Florida I deal with many buyers from different countries looking to purchase a business on an E2 Visa. It may be a more time consuming process to buy a business for an E2, but I had a seller’s broker all but refusing to show their seller an offer from my buyer because they had no idea how the Visa process worked. Would you want to fight with a broker to actually buy a business?

3. Property Manager Shakedown

Recently a situation arose where the property manager decided to wait until days before closing to unreasonably withhold the lease. He suddenly asked for a very large transfer fee and raised the rent a couple dollars per square foot. What would you do in this situation? A bad broker would give in; their buyer’s broker had advised them to sign the lease. I represented the seller in this instance, but after reading the lease and a little assistance from a good attorney the situation was resolved.

4. Due Diligence Debauchery

An agreement is finally made and it is time for due diligence. Now the broker asks for a $3500 deposit to do due diligence and tells you it is standard practice. Does this sound believable? Maybe to a few, but your business broker should not be charging for additional services under most circumstances.  For this small of a business a CPA would have done it for a fraction of the price.

5. Lackadaisical Licensing

I received a call from a local closing attorney that we use for many closings and he asked what the typical protocol for licensing was. After a few questions I was asked “why are your closings always so smooth?” and I had a feeling I knew what was happening. We have an on staff licensing expert who will pull all applications with detailed instructions to get licensing and provide this information at the time of contract. We walk everyone thru the process and assist with questions or we refer out to an outside company that will do it for you. Unfortunately for the buyers in this situation this particular broker gave no mention to licensing and the attorney found out 2 days before closing.

6. Expensive Advice

Would you rely on advice from a professional business broker? Better make sure you have the right one. I received sad call form a gentleman that was advised to purchase a high volume deli on the persistence of their broker. He told me “the books were cooked” and he was “sold” the business by the broker who rushed him through due diligence. He asked me my opinion of value and unfortunately it was nowhere near what he paid. Make sure your broker knows the market, can justify the price – and that you are allowed the proper time, information and tools to do proper due diligence.

As a buyer you will want to keep as much of your money as possible and focus on purchasing the right business, so you will need to call a great broker so you can relax. If you do not, you may need to watch out for many different traps and overcome not only these issues but potentially many others.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

https://infinitybusinessbrokers.com